November 23, 2008
Haslem on Disclosure to Mutual Fund Directors
What Independent Directors Should "Request" of Mutual Fund Advisers, by John A. Haslem, University of Maryland - Robert H. Smith School of Business, was recently posted on SSRN. Here is the abstract:
The expenses, costs, and practices of mutual fund
advisers are not disclosed with normative transparency to
independent directors and shareholders. Such complete
disclosure is absolutely essential if independent directors are to
be vigorous and effective monitors of fund advisers.
To this end, directors should "request" advisers to provide
them with normative disclosure, especially with respect to fund
costs and expenses.
This disclosure requires a new "total expense ratio" that includes the many "hidden" costs and expenses. This comprehensive disclosure has four major components, each with specified categories and subcategories,and discussion: (1) management fees, (2) distribution fees, (3) "other" fund expenses, and (4) transaction costs.
However, there are several major impediments to
independent directors requesting normative transparency of
disclosure. Independent directors are not adequately
empowered under the 40Act, and they have been generally
ineffective in preventing use of numerous (often improper)
adviser practices designed to increase their profits. In fact, for
various reasons, directors often take positions sympathetic to
the profit motives of fund advisers.
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